What is Leverage?
Leverage allows traders to amplify their market exposure by borrowing funds from an exchange. With 10x leverage, $1,000 can control a $10,000 position, magnifying both potential profits and losses.
How Leverage Works
| Leverage | Capital | Position Size | 10% Move Profit/Loss |
|---|---|---|---|
| 1x | $1,000 | $1,000 | $100 (10%) |
| 5x | $1,000 | $5,000 | $500 (50%) |
| 10x | $1,000 | $10,000 | $1,000 (100%) |
| 100x | $1,000 | $100,000 | $10,000 (1000%) |
Types of Leverage
Cross Margin: All available balance used as collateral; lower liquidation risk but entire account at risk.
Isolated Margin: Only allocated margin at risk; position liquidated independently without affecting other positions.
Risks of High Leverage
- Rapid Liquidation: Small price moves can wipe out your position
- Funding Costs: Borrowing funds incurs fees over time
- Emotional Trading: Amplified P&L leads to poor decisions
- Cascading Liquidations: Mass liquidations move markets further against you
Best Practices
- Start with low leverage (2-5x) until experienced
- Never use leverage without stop-losses
- Size positions so liquidation price is beyond key support/resistance
- Consider funding rate costs for longer holds